DJI's dilemma and way out

Today's civilian drones cannot avoid DJI, but DJI is subject to the limited drone market. In the consumer drone market, DJI is the leader, and its dedication to technology has allowed it to always surpass its competitors in products. As products are popularized from individuals to industries, the use scenarios faced by drones are becoming more and more complex, basic functions and performance no longer determine everything, and reliability and safety of operation are increasingly becoming more core considerations.

In the process of the development of drones from the consumer level to the industry level, DJI's corporate strategy orientation has undergone a transmutation of "product platform services". This change is due to the increasingly complex demand for products in the drone market, as well as the reasons for DJI's increasing understanding and participation in various industries in the process of corporate growth.

The illustrations are from Canva Paintable

The age of power and height of drones

UAV is not a new concept produced in the past decade, it was first applied to the military field, and then slowly developed in the civilian field, after 2012-2016 and 2016 - so far the two entrepreneurial tides, in the efforts of many UAV companies, UAVs in the civilian field bloomed everywhere.

Since DJI released its first drone product, "Genie" in 2012, the domestic drone market has experienced two periods with obvious characteristics: "consumer stage" and "industry stage". In the first stage, technology and products are the center of competition, and DJI is undoubtedly the biggest winner, occupying more than 70% of the global consumer drone market share. During this period, consumers are most concerned about the performance of drones, but for enterprises and brands, this also means that consumers are not sticky.

In the second stage, with the continuous exploration of UAV practitioners and the boost of capital, UAV technology has gradually become popular, market competition has begun to differentiate, and UAV has found a foothold in new use scenarios. With the success of the commercialization of UAVs and the rapid formation and maturity of China's UAV industry chain, various industries are looking forward to the new possibilities brought by UAVs. In this period, although technology and products are still the carriers for the application of different scenarios, with the deepening of applications, the focus of competition has begun to change.

For most industries and individuals, the so-called "power and height" era brought by drones is to add a "z-axis" of the sky full of unlimited imagination on the basis of the x/y axis of the ground. Prior to this, although aircraft had become popular, the cost was still high. And for the specific situations faced by many industries, the difficulty of aircraft operation is too high, the fuselage is too large, and it is unimaginable to use aircraft for operations, but the light and simple, easy to operate and low cost of drones has changed everything.

But as a new type of economic carrier, drones actually face many problems. For DJI, technical advantages can ensure the advantages of product experience and performance, but in various different industry applications, how to ensure the use of effects and efficiency is still a "thousand faces" problem; for other drone companies, technology has no advantages, in order to get a piece of the pie in the shadow of DJI, you need to find another way to find growth space outside the product.

As Wang Tao, the founder of DJI, said, "The drone market is a niche market after all, and it can never become a market with massive users." Since the growth of users finally has a visible limit, so if drone companies want to continue to achieve growth in the future, they must dig deep into value-added services based on existing products, especially industry applications, which is an inevitable trend in the development of drone enterprises.

A technical race under the market game

In the relatively early consumer-grade UAV market, due to the relatively basic market form and the more uniform demand at the consumer end, a market competition model that mainly relies on technology is formed. In short, in the competition in this field, whoever has strong technology and whose product is good can win the favor of consumers; on the contrary, consumers are very easy to lose to opponents.

There is no doubt that in the field of civilian drones, DJI leads the field through technical advantages and grasp of the market. DJI had a R&D team of 1,500 people in 2017, and about 14,000 people at its peak; by the end of 2020, DJI had applied for 5,577 invention patents and utility model patents in China. With the blowout of core technology, DJI's products also ushered in explosive growth and quickly occupied the market during this period.

In terms of technology, DJI relies on its technological advantages to be proactive in the face of competition from multiple players entering the consumer drone market, whether it is patent litigation or competing on the same stage. Just as Internet startups can't get around Ali Tencent, drone startups can't avoid DJI, and the actual results of previous drone lawsuits and price wars speak for themselves.

In terms of the market, DJI's high sensitivity to products and markets and the first-mover advantage have made it a crushing level advantage over later "challengers". Taking Zero Degree Intelligent Control as an example, in May 2016, Zero Degree Intelligent Control, with the support of Qualcomm, launched a small drone with highly integrated chips "DOBBY". This entry-level drone that can "fit in the pocket" avoids the "Genie Phantom" series of drones that DJI was the main at that time. In the idea of zero degree intelligent control, DOBBY can do millet in the drone, relying on low prices to reduce the threshold for consumers to start, so DOBBY is on the shelves, and sales quickly exceed 100,000.

But in September of the same year, DJI launched the "Imperial Mavic" series. Different from the Genie Phantom series, like DOBBY, The Royal Mavic also takes a light route, the drone body can be folded, weighs 734g, and has a battery life of 27 minutes. However, Zero Degree Intelligent Control ignores the non-essential commodity factors of drones: although the Royal Mavic is large and the price is high, it performs much better in endurance, image transmission and flight control, and in the eyes of consumers in demand, the limited portability advantage cannot offset the backward part of performance.

DJI's ability to use technology as a foundation and turn the pages of a book to iterate quickly is unmatched in the market. Zero Degree Zhikong quickly lost in the competition with DJI, because the capital chain was broken, and its second-generation product was stillborn, and had to face the difficulties of layoffs and financing. Now Zero Degree Intelligent Control has transformed into an industry-level UAV, focusing on security, surveying and mapping, inspection and logistics solutions, by the way "part-time" UAV formation flight show, currently searching for DOBBY on Jingdong Taobao, can only search for a bunch of snacks.

In addition to zero-degree intelligent control, domestic UAV manufacturers such as EHang, Daotong Intelligence, and Jifei quickly looked for a way back after just finishing head-on with DJI; not only domestic UAV manufacturers, foreign manufacturers such as 3D Robotics Solo in the same stage competition with DJI Genie, also because of "inferior skills" to withdraw from the consumer drone market. Under the shadow of DJI, consumer drone manufacturers have become "retreat drum performance artists".

In general, DJI is able to dominate the consumer drone market, mainly because it can rely on its own technical advantages in the face of challenges, quickly launch corresponding competitors, and win commercial victories by better solving pain points.

Dilemma and way out

However, the "smooth sailing" of the consumer drone market does not mean that DJI can sit back and relax.

First of all, the low ceiling of consumer-grade drones is an endogenous problem of the market and cannot be solved. In 2016, Wang Tao realized that consumer-grade drones are a small market with only tens of billions of space, and data from the Huajing Industry Research Institute shows that the size of the mainland consumer-grade drone market in 2019 and 2020 is 28.3 billion yuan and 31.5 billion yuan, respectively, which means that even if DJI eats up all its market share, its volume and enterprise scale are very limited.

The second is the impact of the epidemic. DJI is very dependent on offline channels and overseas markets, according to the data disclosed online, about 80% of its sales are from offline; while the proportion of sales in overseas markets and domestic markets is about 8:2. Therefore, during the epidemic period, DJI will face the difficulties of tight supply of cargo aircraft and soaring freight costs, as well as the risk of Sino-US trade frictions and the interruption of supply by overseas suppliers.

Finally, in the process of rapid expansion, DJI's own structure is bloated, the management is chaotic and inefficient, and the problems of internal management and team building need to be solved urgently. In 2018, DJI exposed a super-large-scale supply chain corruption case, "conservatively estimated to have caused losses of more than 1 billion yuan", and hundreds of people involved are under investigation. Under various influences, DJI will streamline its structure in 2020, involving all departments, and the corporate marketing and sales team of the Shenzhen headquarters will be reduced from 180 to 60 people.

Nowadays, DJI is getting closer and closer to the ceiling of consumer drones, and there are various internal problems, and at this time, transformation and finding new growth space are the top priorities.

According to the data of China Research Network, the scale of the mainland industrial-grade UAV market reached 15.179 billion yuan in 2019, but it is expected that by 2024, the industrial-grade UAV market size will reach about 150 billion yuan, of which about 31.8 billion yuan is agriculture, forestry and plant protection, the police security market is about 20 billion yuan, the power inspection is about 20 billion yuan, the express logistics is about 25.5 billion yuan, and the geo-mapping is about 44.8 billion yuan. It can be said that in addition to consumer-grade drones, industry-level drones have their own world.

It is also true that those drone companies that have lost in the consumer market have basically entered the industry-level market. In 2016, Jifei released the P20 agricultural drone; in 2017, the French manufacturer Parrot turned to professional applications; in 2018, EHang cooperated with Yonghui Super Species and began to try "smart retail + drone delivery". Network data shows that in 2021, the financing of the national UAV industry will exceed 10 billion, more than 20 enterprises with financing of more than 10 million, and more than 10 enterprises with financing of more than 100 million.

There is no doubt that the foothold of DJI's transformation is in the industry-level drone market, but the business logic of the industry-level drone market is very different from the consumer market. In short, the industry-grade drone market not only brings more imagination to the drone industry, but also brings more uncertainty. For DJI, the industry-level drone market has both opportunities and variables.

Can industry-level drones still be all-you-can-eat?

DJI's goal was once to fly and flying images, and it is true that it has gained a lot, but since 2016, DJI has paid more and more attention to the commercial business department, focusing on expanding the civilian market, developing more subdivisions, and the focus of attention has begun to shift slightly from technology to product experience. DJI's transformation to the industry level is not a sudden, comprehensive action and decision-making, but the result of more than ten years of enterprise operation, driven by market competition and technological development.

On the one hand, the market is changing. The application of unmanned aerial vehicles is constantly expanding, each application scenario is continuing to deepen, and the supervision of drones is also constantly improving, so the industrial pattern is constantly optimized. It can be said that it is not simply technical factors that have spawned the industry-level drone market, but also the result of different companies seeking differentiated competition outside DJI.

On the other hand, businesses are also changing. With the upgrading of unmanned technology and the efforts of drone practitioners, drones have found a foothold in new scenarios, agriculture, electricity, security, logistics and smart cities... Therefore, for the UAV industry, the only constant is the "change" itself, and being able to adapt to changes and even lead the trend is the core competitiveness of UAV companies.

Today, DJI is going further and further down the road in the field of value-added services based on products, and the solutions for professional-grade film and television are particularly eye-catching. Thanks to technological advances in UAV platforming and digitization, as well as years of data accumulation in specific applications, DJI has been able to realize the monopoly closed loop of UAV platforms, modular components and related value-added services in some links, provide customers with personalized, integrated and intelligent high-quality service experiences, and establish strategic partnerships with these industry giants and provide them with long-term technical support.

At this stage, the "flight and power" attributes of the UAV itself are gradually weakened, not that flight is no longer important, but that different industries have different needs for UAVs, and it is difficult to adapt to the environment at this time in the past. Therefore, how to provide personalized services to meet the different needs of different industries has become the focus of competition in the industry-level drone market.

Since the competitive focus of the industry-level market has shifted to the outside of the product to some extent, the influence of technical factors has declined accordingly, and although DJI's advantages are still there at this time, it is no longer the same crushing situation as the consumer market. Because the industry-level market demand is complex enough, understanding the industry and data can better provide value-added services, and it takes time and energy to do a good job in an industry, and this gap period is actually an opportunity for other drone companies.

Therefore, the industry-level UAV market is not only a breakthrough in the ceiling of DJI, but also a breakthrough for other UAV companies to break through the "DJI ceiling". But having said that, DJI won't let go of any piece of meat in its mouth easily. The current civilian drone market can be compared to the sea, DJI is the only shark among them, and the rest of the drone companies need to bite the meat that has been bitten in the mouth before the shark arrives.

Text/Leek Finance, public number ID: jiucaifin